Updated December 28, 2018
U.S.-South Korea (KORUS) FTA
The U.S.-South Korea free trade agreement (KORUS FTA)
entered into force in March 2012. At the request of the
Trump Administration, the two nations in January 2018
began negotiating potential amendments. On September 24,
Presidents Trump and Moon, signed an agreement on
KORUS modifications relating to, among other things, U.S.
auto exports, the U.S. truck tariff, and certain rules,
including on investment. South Korea’s National Assembly
ratified the amendments on December 7 and President
Trump proclaimed the related U.S. tariff modifications on
December 21, effective January 1, 2019. Although
President Trump characterized the changes as a “basic
redoing” of the agreement, most analysts agree that the
modifications are relatively limited in scope and unlikely to
fundamentally alter the balance of commitments.
The KORUS FTA reduces and in most cases eliminates
tariff and non-tariff barriers between the two parties on
manufactured goods, agricultural products, and services;
provides rules and disciplines on investment, intellectual
property rights (IPR) and other issues; commits both
countries to maintain certain worker and environmental
standards; and provides mechanisms for resolving disputes.
The second largest U.S. FTA by trade flows after the North
American Free Trade Agreement (NAFTA), KORUS also
is among the most recently negotiated and arguably has the
most extensive commitments of any U.S. FTA in effect.
The United States and South Korea, allies since 1953,
originally negotiated KORUS to deepen and enhance
economic ties and to strengthen a critical alliance
relationship. The sometimes contentious nature of the 2018
modification talks, including President Trump’s stated
intent to withdraw from the agreement if satisfactory
changes were not made, raised concerns among some
analysts over potential negative spillover effects in the
bilateral security relationship, especially at a time when the
alliance requires close coordination over North Korea
policy. Agreement on the modifications has allayed some of
these concerns, but the Administration’s statements linking
trade and security issues and the ongoing threat of
additional U.S. unilateral import restrictions, particularly on
U.S. auto imports, continues to add a degree of uncertainty
and tension in the overall bilateral relationship.
Views on KORUS and its outcomes over the past six years
are mixed. Proponents argue the FTA has expanded trade
(including U.S. exports), investment, competition, and
consumer choice in both countries, increased U.S. IPR
protection in South Korea, and improved transparency in
South Korea’s regulatory process. Others, including most
prominently President Trump, argue that the agreement’s
impact is disappointing, pointing to an increase in the U.S.
trade deficit with South Korea. Some U.S. stakeholders also
raise concerns regarding South Korea’s implementation of
KORUS Modifications and Other Issues
Unlike the NAFTA renegotiation, the Trump
Administration negotiated changes to the KORUS FTA
without following the requirements of U.S. Trade
Promotion Authority (TPA). TPA provides for expedited
congressional consideration of legislation to implement
U.S. trade agreements based on meeting specific criteria.
The KORUS FTA modifications, however, consist
primarily of South Korean regulatory changes and U.S.
tariff modifications, and therefore do not appear to require
action by Congress for implementation. The KORUS
implementing legislation and agreement provide little detail
on amendment procedures, but do provide presidential
proclamation authority to modify the U.S. FTA tariff
[T]he President may proclaim...modification…of any duty...
to maintain the general level of reciprocal and mutually
advantageous concessions with respect to Korea...
KORUS FTA Implementing Legislation, P.L. 112-41
October 21, 2011
The negotiated modifications include:
Changing tariff commitments by extending the 25%
U.S. light truck tariff twenty more years to 2041;
Doubling the number of U.S. vehicle exports to South
Korea that can be imported with U.S. safety standards
(25,000 to 50,000 per manufacturer per year), and
clarifying South Korean recognition of certain U.S.
emissions and auto parts standards for U.S. exports;
Amending the trade remedy chapter by adding
transparency and reporting requirements including
calculations of dumping margins;
Amending the investment chapter, including additions
also in TPP, such as clarifying that public welfare may
be considered in national treatment determinations and
that failure to meet investor expectations does not
violate minimum standard of treatment provisions;
Confirming customs principles on expeditious and riskbased origin verifications;
Amending South Korea’s Premium Pricing Policy for
Global Innovative New Drugs to ensure it is consistent
with KORUS commitments;
Initiating the addition of certain textile and apparel
inputs to the KORUS short supply list, potentially
allowing South Korea to make greater use of third-party
inputs in some exports to the United States.
In a separate but related move, in the spring of 2018 South
Korea also negotiated an exemption from the U.S. Section
232 “national security” steel tariffs that were announced in
March 2018. In place of the 25% tariff, U.S. imports of
South Korean steel are subject to a quota equivalent to 70%
of 2015-2017 imports. South Korea remains subject to the
Administration’s tariff increases on washing machines,
solar panels/modules, and aluminum, which were also
announced in 2018. A U.S. Section 232 investigation on
autos is ongoing and could result in additional tariffs on
U.S. auto imports. A proposed currency deal was not
included in the FTA’s modifications, but South Korea has
stated plans to begin disclosing its foreign exchange
transactions—a practice long sought by the United States.
U.S.-South Korea (KORUS) FTA
Trade and Investment Patterns
South Korea is the seventh largest U.S. trading partner with
total trade (goods and services) in 2017 of $156.1 billion
($73.4 billion in exports and $82.7 billion in imports). From
2011 (the year before KORUS took effect) to 2017,
bilateral trade increased by 21%. U.S. imports increased by
25% for goods and 12% for services, while exports
increased by 9% for goods and by 45% for services. From
2011 to 2017, the stock of U.S. foreign direct investment
(FDI) to South Korea grew from $28.2 billion to $41.6
billion, while South Korean FDI in the United States grew
from $19.9 billion to $51.2 billion.
The overall (goods and services) U.S. trade deficit with
South Korea grew by more than 70% since KORUS went
into effect. It grew from $5.4 billion in 2011 to $9.3 billion
in 2017, which represented less than 2% of the global U.S.
trade deficit in 2017. It is difficult to determine the extent to
which the trade agreement affected trade given the myriad
factors that simultaneously affect these flows. In 2016, the
U.S. International Trade Commission estimated that the
bilateral trade deficit would have been larger without
KORUS. Slower economic growth in South Korea likely
explains some of the deficit growth; South Korea’s imports
from China and Japan were also flat or fell from 2011 to
2016. This pattern shifted in 2017, as South Korea’s global
and U.S. imports increased markedly, leading to a $7.3
billion decrease in the bilateral trade deficit.
Figure 1. U.S. Total Trade with South Korea
roughly one-third of U.S. goods imports from South Korea.
Auto trade was among the most contentious issues in the
original FTA negotiations, but the Detroit Three U.S.
automakers ultimately supported the agreement. The
KORUS FTA eliminated the 2.5% U.S. auto import tariff in
2016, and was originally to maintain the 25% U.S. light
truck tariff through 2018, gradually eliminating it by 2021.
(The 2018 modifications are to extend the 25% truck tariff
to 2041.) South Korea’s 8% auto import tariff was reduced
to 4% immediately and eliminated in 2016, and its 10%
light truck tariff was immediately eliminated. Under
KORUS, bilateral tariffs on virtually all auto parts
immediately dropped to zero. From 2011 to 2017, U.S. auto
and parts exports doubled to $2.4 billion, while U.S.
imports increased by 55% to $23.9 billion.
Services trade was a priority in the KORUS FTA talks as
the U.S. sought greater market access for its highly
competitive services firms, and South Korea hoped to
improve productivity in a sector that lags behind its
manufacturers. Commitments are on a “negative list” basis;
i.e., they apply to all sectors except those specifically
exempted. Provisions prohibit discriminatory treatment,
local presence requirements, and market access limitations,
and require certain steps in the regulatory process. Industryspecific commitments include the opening of South Korea’s
legal services sector; a financial services chapter including
a provision to allow data flow transfers; and an annex on
express delivery. Since 2011, the U.S. bilateral services
trade surplus trade grew from $6.9 billion to $13.3 billion,
with major growth in exports of travel (+$4.1 billion) and
charges for use of intellectual property (+$1.6 billion).
Potential Issues for Congress
Trade Agreements and Trade Deficits. The Trump
Administration has made trade balances a key metric of the
success of U.S. FTAs, yet most economists argue other
factors largely determine trade balance outcomes. What are
the best metrics to evaluate U.S. FTAs? Has KORUS,
which lowered reciprocal trade barriers, achieved its goals?
Source: Bureau of Economic Analysis.
Selected Key Sectors and Provisions
Agricultural products are an area of U.S. comparative
advantage. The United States ran a $6.3 billion agricultural
trade surplus with South Korea in 2017. South Korea’s
agriculture sector is highly protected—its agricultural tariffs
average 57%—but through KORUS, South Korea
immediately granted duty-free status to almost two-thirds of
U.S. agricultural exports. Tariffs and import quotas on most
other agricultural goods are to be phased out by 2021. One
of the most significant market access gains for U.S.
producers is South Korea’s phased elimination of its 40%
tariff on beef by 2027. Rice, however, was excluded at
Seoul’s request. Despite export gains from 2011 to 2017 in
sectors with large tariff reductions, such as beef (+$500
million) and fruits and tree nuts (+$356 million), overall
U.S. agriculture exports to South Korea have decreased,
due largely to a major decline in the value of corn exports ($1.1 billion), and partly due to a drop in commodity prices.
U.S. and South Korean producers compete intensely in the
motor vehicle and parts sector and such imports account for
Modifications and Ongoing Implementation. Congress
has constitutional authority to regulate foreign commerce,
implements FTAs through legislation, and sets U.S. trade
negotiating objectives, but the Administration sought
modifications to KORUS without formal congressional
notification or consent. What is the appropriate role for
Congress in considering modifications to FTAs that do not
require changes to U.S. law?
Trade Disputes and the Alliance. Some analysts worry
that trade tensions may influence South Korean views on
the alliance and broader bilateral relations. What is the most
productive way to address trade concerns, such as the
imbalance in bilateral auto trade, without damaging vital
U.S. national security and foreign policy interests? Are the
KORUS FTA’s dispute mechanisms sufficient?
Brock R. Williams, Coordinator, Specialist in
International Trade and Finance
Bill Canis, Specialist in Industrial Organization and
Jenny Hopkinson, Analyst in Agricultural Policy
Mark E. Manyin, Specialist in Asian Affairs
U.S.-South Korea (KORUS) FTA
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